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From Costly to Cost-effective: How Technology Can Help Hospitals’ Bottom Line

Sarah Thomas

My Take

Throughout my career in health care policy, many health economists have been pretty emphatic that technology is a cost driver for hospitals and health systems. It is an obvious conclusion. The fee-for-service model led to a medical arms race where the institutions that had the newest and greatest technology (mostly clinical) often garnered the best reputation and strongest bottom line.

In the last decade, the focus around technology in hospitals has shifted somewhat, to electronic health records (EHRs). Like past technologies, the adoption of EHRs translated to higher costs for hospitals – at least in the near term. At some point, however, I expect we could see a net savings (as well as other benefits) for health care systems that have the most fully functional and interoperable EHRs.

So what about the next phase? As we explore ways of getting better value in health care, many hospitals are looking to shift care from the most expensive inpatient settings to providing care in ways that reduce spending while improving outcomes. Of course, this is likely to have a significant impact on a health system’s bottom line.

—Between 2011 and 2015, US hospitals, on average, had positive operating margins ranging from 4.1 percent to 4.8 percent. However, about 30 percent of US hospitals had negative operating margins during this period.

—Commercial health insurance payments – as a percentage of hospital and health systems’ total payments – are expected to drop from 37 percent to 33 percent by 2024. At the same time, the percentage of revenue from historically lower-margin Medicare is projected to increase from 35 percent to 40 percent of total payments.

—Labor costs will likely continue to rise due, in part, to patient-volume growth from an aging and more chronically ill US population.

In addition to these concerning stats, shrinking margins are also at the top of the agenda among many hospital and health system CEOs, as outlined in our new hospital CEO series. Emerging technologies could help navigate the potentially bumpy road ahead and alleviate increasing margin pressures. Here are a few examples of how technology can help address key issues:

Hospitals should consider strategies to reduce costs and improve revenue.

Technology can help: When hospitals have high vacancy rates, they often turn to high-cost solutions – overtime, agency staff, and travel nurses – to bridge the gap. This practice can make contract labor one of the highest variable costs for hospitals and health systems. Moreover, these short-term solutions can produce damaging effects on employee morale, patient experience and outcomes, and overall expenses. One large health system profiled in our report applies real-time analytics to manage its workforce, reportedly checking labor statistics every two hours, and staffing its workforce based on acuity and productivity targets. To accurately identify its staffing needs, the health system uses a dashboard enabled by predictive analytics to look at projections and historical patient figures.

Hospitals should consider ways to optimize internal support services and processes by using predictive and responsive platforms that are efficient, automated, and move in real time.

Technology can help: Organizations can use robotic process automation (RPA) to streamline administrative work and tedious back-office tasks. RPA might be appropriate when a task involves repetitive action, such as copying and pasting information from a spreadsheet into a software application. Applying RPA can free employees to focus on more important tasks, and reduce the error rate at the same time. RPA also can help reinvigorate employees because it shifts their job away from monotonous duties and toward those that require human interaction and oversight. A first step for health care organizations might be to assess how RPA could transform the revenue cycle function and then move to other functional areas.

Hospitals should consider looking for ways to reduce administrative costs around claims processing and billing disputes.

Technology can help: Hospitals should consider moving further along the cognitive computing spectrum to more advanced technologies, such as machine learning and artificial intelligence (AI). Unlike RPA, machine learning technologies can recognize patterns in data. Applied in health care organizations, machine learning can help identify payment variance and remediate complex payment methodologies.

Hospitals should consider developing innovative ways to improve work flow.

Technology can help: Exponential technologies can improve staff productivity. Robotics and automation, for example, can help nurses complete routine tasks such as collecting blood samples. This technology can cut task time, reduce the risk of error or injury, and improve the patient experience. And as organizations progress from relying on manual tasks to using RPA and cognitive computing, a workforce of doers can become a workforce of reviewers. In the long run, organizations might be able to reduce their reliance on contract labor.

FX

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